Political stalemate beckons for Ireland on eve of election

DUBLIN (Reuters) - Ireland risks becoming the third of Europe’s bailed out states to face political stalemate after national elections on Friday that are expected to deliver no clear winner.

Barring a late shift in voter intentions, the ballot will put its two biggest parties centre stage and offer them an uneasy choice between maintaining a near century-old rivalry and breaking with tradition in a potentially unstable alliance.

Ireland’s economy has outpaced the rest of the continent for the past two years and, going into campaigning at the start of February, Prime Minister Enda Kenny’s conservative Fine Gael had a wide lead.

But in an echo of political developments last autumn in Spain and Portugal, his re-election message to “keep the recovery going” has fallen flat among many voters who, yet to feel the benefits of an upturn driven in part by hefty doses of austerity, have defected to protest parties.

Combined support for Fine Gael and current junior coalition partner Labour has dipped to between 33 and 37 percent in polls.

That compares with 41 percent days before Kenny called the election on Feb 3, and with the near 45 percent analysts say the two parties would need to secure a majority.

“I’ve seen governments on an overall majority at 41, 42 percent. We’re very close to that,” Finance Minister Michael Noonan of Fine Gael said on Tuesday.

Many do not share his optimism, and the gap may also turn out to be too wide for them to govern with small parties or independent candidates.

“You can’t rule out a last-minute surge but ultimately all expectations are for a hung parliament or some kind of arrangement between Fianna Fail and Fine Gael,” said David Farrell, Professor of Politics at University College Dublin.

Such an alliance, between heirs to opposing sides in Ireland’s 1922-23 civil war, would be unprecedented.

REACTING TO EVENTS

Factors including voter anger at austerity, perceptions of rising social inequality and mistrust of established political elites meant elections in Portugal in October and in Spain in December both failed to return clear majorities.

In Spain, where the centre-right incumbent came up short of re-election and the country remains without a government, a strong economic recovery is still on track.

Noonan predicted economic instability would follow any political instability in Ireland within six months.

But analysts believe its economy could also handle a degree of uncertainty, having grown around 7 percent last year and with the jobless rate having fallen below 9 percent from over 15 percent in 2012.

The main risks to Ireland, at least initially, appear to come from its ability to react to external events. Unstable government could slow a response to a possible “Out” vote in an EU membership referendum in neighbour and major trade partner Britain on June 23.

Uncertainty about the election and Britain’s referendum pushed the gap between Irish and French bond yields to its widest in eight months on Tuesday, although Ireland is still able to borrow near record lows.

Ireland’s then ‘Celtic Tiger’ economy last enjoyed stellar growth rates in the run-up to the 2008 financial crisis, which burst a property bubble, saddling its banks with unsustainable bad debts and the government with a ballooning budget deficit.

It entered a sovereign bailout programme in 2010, a year before Portugal and two years before Spain took a rescue package for its banks. In 2013, Ireland became the first euro zone country to exit a bailout.

“The Irish economy has done a remarkable job to get itself in the position it’s in,” Tony Smurfit, chief executive of one of Ireland’s largest companies, packaging group Smurfit Kappa, told Reuters.

“It’s very important a government has a clear mandate to develop the country in the years ahead because uncertainty is always bad in an economy. Confidence is everything.”

SECOND ELECTION?

Fine Gael remains the favourite to come out on top when vote counting begins on Saturday, leading nearest rivals Fianna Fail by between four and 10 percent in final surveys.

Combined, the two parties will almost certainly exceed 50 percent. But while their policy differences are few, they have given no signals that they would consider ending their long and often bitter rivalry to team up this time.

Coalition would be a major gamble for whichever party ended up being the minority partner and open up the opposition to left-wing protest party Sinn Fein, set to become the country’s third largest for the first time.

Fianna Fail might instead choose to support a Fine Gael-led minority administration on a vote-by-vote basis, according to Eoin O‘Malley, politics lecturer at Dublin City University.

But such an arrangement might not last much more than a year, O‘Malley predicts.

“Fianna Fail ...might have little to fear from a second election, especially one at the time of its own choosing,” he said.

Additional reporting by Conor Humphries and William James; editing by John Stonestreet